Retail Arbitrage: Legal or Illegal?

[12zuxi]

Came across to this concept called Amazon-Ebay arbitrage, where you list items on Ebay and fulfill orders by purchasing from Amazon. To cover up the source price, you select the gift option at the checkout.

I've tried this for a while now and it does work, though the profit margin is quite slim. I am at a stage where I need to decide whether to carry on or get out, and wanted to get your opinion about this:

Retail arbitrage should not be illegal, but I am a bit uneasy about the part marking items as gift. Amazon charges the same price (and same amount of VAT) regardless. So from a tax point of view it should not matter if items are marked as gift or not, no?

 

[12zuxi]

Further to my previous post: I'd like to know if, down in line if HMRC were to audit this sort of business, the practice of marking items as "gift" would cause a headache?

I'd like to think it would not, as I'd have an invoice for purchase (amazon receipt) and
and an invoice for selling (ebay / paypal receipt). Any words on packaging receipt should be rather meaningless.

Does this sound right?

 

[IanG]

Gift option just configures the packaging?

 

[Alan]

What you are doing is actually just a form of drop shipping in my opinion.

The problem I see is that legally you become the retailer as you step in between the Amazon seller who now becomes effectively a wholesaler to you, so you are responsible for handling returns both under distance selling and due to faults etc. If you are operating on very slim margins one or two problem sales could wipe all your profit out.

 

[12zuxi]

Thanks for the replies.

Gift option just configures the packaging?

Gift option appears on the invoice (it says item is sent as a gift); but it does not affect prices, postage or the VAT Amazon charges.

What you are doing is actually just a form of drop shipping in my opinion.

The problem I see is that legally you become the retailer as you step in between the Amazon seller who now becomes effectively a wholesaler to you, so you are responsible for handling returns both under distance selling and due to faults etc. If you are operating on very slim margins one or two problem sales could wipe all your profit out.

The profit margin factors that in as well as VAT and other taxes, if my calculations are correct. What I am worried about is not the profitability or sustainability of the model; I am more concerned about whether, in case of an audit, HMRC would take an issue about retail arbitrage and that items are marked as gift.

Thanks again...

 

[IanG]

Is that not just the Amazon nomenclature which tells them how to pack it?

I can see it makes a difference if you were talking about import duty etc. where that does affect the value but if the price / VAT / other tax element doesn't change in this case I can't see how its a concern.

Others may know more but my guy feeling is that you're fine.

 

[Scalloway]

HMRC would take an issue about retail arbitrage and that items are marked as gift.

Thanks again...

All that HMRC would be concerned about is whether you have declared all the income you have received. It has no concern with the legalities of the sales.

 

[Alan]

As above, HMRC don't care whether it is legal or illegal, they just care if it is profit from trading.

(trading being buying cheap and selling expensive)

http://www.hmrc.gov.uk/manuals/bimmanual/bim22010.htm

Interestingly illegal activities such as burglary or housebreaking is not a trade and so not taxable.

 

[12zuxi]

Thanks for the answers; really appreciate it.